Credit and debit accounts of various sorts have permeated today's financial environment. It is a matter of convenience for holders of these accounts to pay for goods and services or conduct financial transfers by presenting the appropriate account card or account number to the provider of such goods and services. The foregoing is done with the understanding that they will be billed for the sale amount at a later date, or that their accounts will be immediately updated to reflect the transaction. The need to carry money or have a sufficient amount of money available in a checking account is no longer required. In order to obtain credit accounts, one must generally have a proven, reliable credit history which is devoid of past due payments to creditors.
Unfortunately, the credit system is subject to a significant level of criminal activity through the unauthorized use of existing credit cards or account numbers, and the illicit opening Of fraudulent credit accounts. [It is noted that the cost of credit card fraud in the United States alone is enormous and increasing yearly. US credit card fraud reached $858 million in 1992, more than twice the 1989 total (source: American Banker - Jan. 21, 1993, Vol. 158, No. 13, pg. 1]
The following two scenarios are but a few of the ways that unscrupulous persons might disadvantage the unwary consumer:
Lost or stolen credit cards might be used by an unauthorized person (perpetrator) to purchase goods or services, while the authorized card holder (victim) is assessed charges for those goods or services until the card is reported lost or stolen. This might constitute a significant delay if, for example, the cardholder is unaware for some time that the card is lost or stolen.
Credit cards might be applied for by a third party (perpetrator) using another person's (victim's) name, social security number and limited additional information (e.g., address, date-of-birth). The perpetrator might also open new accounts under a different billing address, charge goods and services to the new account and ignore the bills. In this scenario, the victim is ultimately contacted and asked to pay for the accrued charges, though they had nothing to do with their existence. Meanwhile, the victim's credit rating deteriorates while the problem is being rectified.
In the past, credit issuers and providers of goods and services have taken some steps to protect themselves from such fraud. Prior art techniques involve on-line credit checks at the point of sale; i.e., electronic access to off-site databases to determine whether the credit account being used by a purchaser is valid, or if cards issued under that account have been reported lost or stolen by the account owner or cardholder. This approach prevents fraudulent use of the victim's illicitly obtained (e.g., lost or stolen) cards only after the victim reports the loss/theft to the issuing organization. As mentioned earlier, the victim may not be aware of the loss immediately, so the cards can be easily used by the perpetrator until such time that the loss is reported.
Similarly, use by the perpetrator of illicitly obtained cards can take place freely until such time that the issuing organization denies credit transactions due to account delinquency, or the victim becomes aware of the fraudulent account and cancels it. Of course, this process may take many months, during which a substantial quantity of goods and services might be fraudulently procured. Compounding this problem is the common practice of the perpetrator opening a large number of such fraudulent accounts under the victim's name and social security number.
In addition to the aforementioned, some account issuers monitor account activity in real-time and compare present activity with historic patterns of use for that cardholder. This is done in an attempt to identify suspicious activity indicative of fraudulent use, and to deny transactions in such instances. Of course, this technique is subjective in nature and might therefore lead to improper occurrences of both denial of legitimate transactions and approval of fraudulent transactions. Account issuers also offer credit protection plans, however such plans only limit the victim's liability, but do not prevent fraudulent transactions from occurring. Neither of these practices are capable of protecting victims from activity on unauthorized accounts, opened under a victim's name and social security number, when the victim is unaware of these accounts.
Still other systems are being proposed that might compare a physical characteristic (e.g., fingerprint, retina-scan or voiceprint) of the cardholding purchaser to information encoded on the credit card itself as a means of identity verification. However, not only is this system very costly, it is ineffective for telephone transactions, an increasingly popular method used for purchase and banking transactions. Additionally, the characteristic identification scheme fails to address the problem of unauthorized accounts, and might ultimately be defeated by a criminal population whose technical expertise increases with time.
Accordingly, there exists a need to effectively combat the problem of consumer account fraud. A solution capable of alerting the point of sale provider of goods and services, the relevant financial institution, and the potential victim to an impending fraudulent transaction, would be an improvement over the prior art. Further, a method that provides the ability to prevent completion of a fraudulent transaction, in real time (i.e., while it is being attempted), would be quite beneficial.